Contents

List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Part I Chapter 1 Chapter 2 Chapter 3 Chapter 4 Part II Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Part III CharaCterIstICs of the JaPanese CorPoratIon . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Kaizen and Total Quality Management . . . . . . . . . . . . . 3 Human Resource Management . . . . . . . . . . . . . . . . . . 13 Production Management . . . . . . . . . . . . . . . . . . . . . . . 31 Knowledge Management . . . . . . . . . . . . . . . . . . . . . . . 39 DoIng BusIness WIth the JaPanese . . . . . 53 Entering the Japanese Market . . . . . . . . . . . . . . . . . . . 55 Succeeding as a Foreign Manager in a Japanese Firm . . 75 Intercultural Challenges When Working in Japan . . . . 91 Selling Your Product to Japanese Customers . . . . . . . 107 Negotiations With Japanese Business Partners . . . . . . 125 What Can Western Managers Learn froM JaPan? . . . . . . . . . . . . . . . . . . . . . 137

Chapter 10 Learning From Japanese Management . . . . . . . . . . . . 139 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

Tables
Table 1.1 Table 4.1 Table 4.2 Table 4.3 Table 5.1 Table 5.2 Table 5.3 Table 5.4 Table 5.5 Table 6.1 Table 8.1 Table 9.1 Overview of the 5S System . . . . . . . . . . . . . . . . . . . . . . 8 Knowledge Management in Japan and in the West . . . 41 New Product Development in Western Corporations and in Japanese Corporations . . . . . . . . . 48 Changes Regarding Knowledge Management in Contemporary Japanese Organizations . . . . . . . . . . . . 50 Support Organizations for Entering the Japanese Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Challenges When Attempting to Enter the Japanese Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Challenges When Looking for a Business Partner in Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Challenges When Establishing a Subsidiary in Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Overview of Challenges When Entering the Japanese Market . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Differences Between Japanese and Western Project Management . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Networking Organizations for Foreign Entrepreneurs and Managers in Tokyo . . . . . . . . . . . . 121 Dos and Don’ts When Negotiating With the Japanese . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

Preface
When I first went to Japan almost 20 years ago, I was a student of international business. To support my expensive language classes in Tokyo, I got a job in a Tokyo firm, where I stayed for more than 2 years. This was my first job, and at that time, I had no comparison with what it would be like to work in a Western firm. I loved working in a Japanese firm. People were very friendly and supportive, the enthusiasm of employees for their job and their company was enormously high, and there was real team spirit. Even after returning to my home country, I continued to work in a Japanese corporation in Vienna, where I worked at one of Japan’s major broadcasting corporations. Work was very demanding, but again, the Japanese team was highly motivated, the atmosphere was family-like, and all employees were treated with great respect. It was only at the age of 27 that I first entered a Western firm. This was the biggest culture shock I have encountered so far. After being socialized into a Japanese firm for more than 7 years, the Western firm seemed an aggressive and very uncooperative place. I still remember how shocked I was to see great competitiveness between employees—something I had never experienced before. Communication styles were very different as well: In Western firms, employees seemed to be very careful about what they said to each other, whereas in Japan, we had no real secrets within the firm. It took me a few months to recognize the benefits of a Western workplace in which praise is more individually awarded and I was seen more as an individual than as a team member. I enjoyed working in both systems. But I was always, and still am, amazed how complementary and at the same time how successful both are. Western business practices focus on individuals and gain competitive advantages by using their different views, opinions, and ideas as a larger pool from which to extract ideas that benefit the firm. Japanese organizations stress group orientation and build their competitive advantages on merging each group member’s views and attitudes into a larger, new idea.

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Western organizations have a stronger focus on differentiating themselves from other firms, whereas Japanese firms do not mind reviving ideas that have been successful in another part of the world. Both the Western and the Japanese management systems have their strengths and weaknesses, but they both represent very unique ways of looking at the world and at business. No wonder that managers in the East and West develop very different solutions to similar problems. Japanese business practices are not applicable in all Western business challenges, but they often provide solutions that are very different from those found in Western firms. But the differences between management in the East and West often lead to confusion and misunderstandings on both sides. In my classes, students often ask which management style is better, and my answer is always the same: There is no perfect management system. Both the Western and Japanese systems have their flaws and their strong points. Depending on the economic situation, they either lead to success or can lead to failure. When I set out to become a researcher an international management, my main goal was to investigate and communicate various ways of managing a firm successfully. Understanding Japanese Management Practices presents the results of my experience in Japanese firms and my research on the topic. Today, after working most of my professional career in Japanese organizations, I still consider Japanese management practices as very unique and complimentary to Western management practices. These practices can provide a lot of inspiration to managers and researchers outside of Japan and support the development of new solutions to global management challenges. International managers should therefore be familiar with both systems in order to develop a strong and diverse management skill set. Understanding Japanese Management Practices describes Japan as a place for business and discusses the management practices that made Japan famous throughout the business world. It explains the social concepts on which Japanese management is based and its most famous business practices. The book covers the major management practices known in the West and also presents Japanese techniques and facts that so far have not been discussed in Western media or research. It describes work life in the Japanese firm and shows what non-Japanese managers need to

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know when doing business with the Japanese. Negotiations with the Japanese and entry into the Japanese market are both discussed, and Japanese business etiquette is explained. The book closes with a chapter on what Western managers can learn from Japanese management practices. Understanding Japanese Management Practices targets managers, students of business, and students of Japanese anthropology who are interested in modern Japanese management and how Japan’s management practices can be used to increase competitive advantage. Parissa Haghirian Sophia University Tokyo, Japan April 2010

Part I

Characteristics of the Japanese Corporation

ChaPter 1

Kaizen and total Quality Management
Japanese companies are known for their customer orientation and their high-quality products. Efficient business processes therefore play a major role in Japanese management, and many Japanese management concepts have been adopted and successfully integrated into Western management techniques and businesses. The most famous concept in a Japanese firm is kaizen, or continuous improvement, which is often considered a philosophy and aims at improving and perfecting all management processes within a firm. Another concept, which has become successful in Western firms, is the 5S System, which helps organize business and production processes within the firm. The high quality with which Japanese products are produced and with which services are performed are based on business practices that are recognized outside of Japan. In this arena, the Japanese have developed and implemented very effective tools for sustaining their competitive quality advantage. In this chapter, you will learn about the most prominent management practices in Japan. Upon completion of this chapter, you will • know what kaizen is and how it can improve all business processes; • learn what the 5S System is and how it works; • learn about the instruments that are used to manage and sustain quality in Japan.

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Kaizen
Continuous Improvement In the West, kaizen is the most well-known concept of Japanese management. Kaizen is the Japanese term for “continuous improvement.” Kaizen is neither a single management activity nor a management technique, but it can be best described as a positive attitude or a philosophy of creating the highest value and quality for the customer. The main aspect of kaizen is that it is not about radical and ad-hoc change or turnaround but that it is performed by making small changes on an everyday basis to improve productivity, safety for all employees, and business process effectiveness while reducing waste. The overall goal is to enhance the quality of products and to maximize cost efficiency and the safety of manufacturing processes. The concept is based on two principles. First, kaizen is not restricted to a single management discipline but is considered a part of every single business process. Second, kaizen is a continuous process that is supported by all members of a Japanese organization. Kaizen can therefore be applied to every management process or operation and in every organization. Every process can be improved and should be continuously improved. The philosophy of kaizen was popularized in the West by Masaaki Imai in his book about kaizen, which created a worldwide interest in the concept. The term itself is not clearly defined and is often confused with concepts like the kanban system, total quality management, and just-in-time management. Small Changes in Every Process The Japanese concepts of change and improvement differ from Western ideas on these topics. In a Western firm, change typically refers to “radical” change. If a business process or a strategy is changed, we prefer to see a real difference compared to the original situation. A company turnaround or an entirely new strategy are considered significant changes. Small changes, such as moving a desk from one part of the room to another to improve communication between employees, or other similar activities, are not considered very influential on overall corporate success. The Japanese have a different attitude toward change. Their ideas of change and improvement are ubiquitous. Every process and activity can

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be improved at any time. Even small changes, such as moving a desk, are considered important because the changes will improve the situation in the long run. Since Japan is a group-oriented society, any change, adaptation, or improvement must be discussed with a large number of people. Important decisions can never be made by just one person. However, group discussions often do not lead to radical ideas, as too many people are involved and too many viewpoints must be considered—the more people involved, the more mass oriented the decision becomes. Radical changes such as drastic downsizing or adopting a strategy are very difficult to implement in a Japanese firm. Radical decisions are therefore very rare, and improvements in the Japanese workplace are often very subtle and would not be considered very significant from a Western perspective. Gemba Kaizen and Teian Kaizen We can distinguish between two types of kaizen: gemba (actual workplace) kaizen and teian (plan) kaizen. Gemba and teian kaizen both aim to develop higher production and quality standards. Gemba kaizen is an action-oriented approach and refers to improvement activities that are performed in the actual workplace, such as on the shop floor or on the manufacturing line. Gemba kaizen involves every aspect of everyday work that can be improved. The focus of gemba kaizen lies in small changes that will modify the overall success of the company—not necessarily right away but over time. Gemba kaizen methods are quality circles and suggestion systems. In quality circles, a specialized team develops and designs ideas concerning how to improve the company’s performance. Suggestion systems encourage employees to submit suggestions for improving work processes and customer satisfaction. Teian kaizen, on the other hand, represents a theory-based approach and refers to strategic improvements that are influenced by top management. Here, the implementation of new processes and practices play the most dominant role. The overall goals of teian kaizen are improved business and manufacturing practices. The most prominent teian kaizen methods include total quality control and just-in-time management.1

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Kaizen Can Be Applied Anytime and Everywhere The first step to a kaizen-oriented enterprise is a corporate culture that motivates employees and rewards them for improving work and business processes. Kaizen is a process-oriented approach rather than a resultoriented one. Kaizen is not just the task of a special group within a company; employees of all levels, from the CEO down, participate in kaizen activities. When the kaizen philosophy is applied, every single organizational member is responsible for the improvement processes. Another feature of kaizen is that every process, not only a manufacturing or a service process, can be improved, which means that kaizen can also be applied in nonmanagerial situations. For example, if a Westerner wanted to avoid drinking coffee anymore, he or she would make a radical change in drinking habits, trying to completely stop consuming coffee from one day to the next. However, this might not be successful since the body is not accustomed to a lack of caffeine. This might then affect the mood and work abilities of the person. However, if the kaizen attitude is applied in this situation, the person might first substitute one cup of green tea for a cup of coffee on the first day. This is a first step in making the change, and the person still feels well and the body can adjust to the change in the amount of caffeine consumed. A day or a week later, two cups of coffee per day are substituted with green tea, and after awhile, switching entirely to green tea is very easy. The following sidebar (Implementing Kaizen) describes in which way a kaizen-oriented attitude can be implemented within Western organizations.

Implementing Kaizen
• Encourage a corporate culture in which new ideas are rewarded and employees are interested in improvements. • Promote shared responsibility; all employees, from top management down, are responsible for improving business processes. • Stress that even small processes can be improved. • Remember that starting with a small step (e.g., one cup of green tea a day) lowers resistance to change and helps employees to adjust to new ideas. • Hold regular reflection meetings about the regular progress in which improvements are discussed and promoted.

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the 5S System
Another famous management practice related to gemba kaizen is the 5S System. The “5S” refers to five key words all starting with an “S” in Japanese. The words describe how a workplace or production process can be effectively organized. The 5S System consists of five stages of a production process, which are seiri (sort), seiton (set in order), seiso (clean), seiketsu (systematize), and shitsuke (standardize). The words combined do not really make up a system but a set of guidelines regarding how to improve a business or production process, or any kind of standardized process, and maintain lasting, high-quality performance. In the first stage, seiri, all tools and materials used in the work process are taken care of. Seiri refers to tidiness and structured organization. During the seiri process, all materials and tools are sorted, and only the necessary ones are kept for continued use. Everything else is stored or discarded. This process leads to fewer hazards and less clutter that might interfere with productive work. Stage 2, seiton, refers to straightening and orderliness. In this phase, all the materials and tools chosen for the production process are organized. The focus is on the need for an orderly workplace. Even though the translation appears to indicate something similar to “sweeping,” the intent is to arrange the tools, equipment, and parts in a manner that promotes workflow. It has to be systematic. For example, tools and equipment should be kept where they will be used (i.e., in order to straighten the flow path), and the process should be arranged in an order that maximizes efficiency. There should be a place for everything, and everything should be in its place—this is also known as “demarcation and labeling of place.” Stage 3, seiso, stands for sweeping and cleanliness. It means to clean all items used at work (e.g., all materials used during a manufacturing process). The workplace, for example, has to be clean and tidy all the time. At the end of each shift, a work area is cleaned up and everything is restored to its place. This makes it easy to know what goes where and to have confidence that everything is where it should be. The key point is that maintaining cleanliness should be part of daily work—not an occasional activity that is initiated only when things get too messy.

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Phase 4, seiketsu, translates as “standards.” Seiketsu refers to making all the cleaning, control, and improvement processes a regular activity in the workplace, allowing for control and consistency. Basic housekeeping standards apply everywhere in the facility. Everyone knows exactly what his or her responsibilities are. Housekeeping duties are part of regular work routines. Phase 5, shitsuke, means “sustaining discipline.” It also refers to standardizing and sustaining the process to support long-term kaizen goals and to maintaining and reviewing standards. Once the previous four phases have been established, they become the new way of operating the organization. Maintaining a focus on this new way of operating is essential, and a gradual decline back to the old ways of operating should not be allowed. But if an issue arises about improvements in working, a new way of doing things, or a new requirement concerning output, it usually leads to a review of the first four commandments. In a Japanese context, a sixth phase, “safety,” is sometimes added. Purists, however, argue that adding this phase is unnecessary since correctly following 5S will result in a safe work environment. Often, however, a poorly conceived and designed 5S process can result in increases in workplace hazards when employees attempt to maintain cleanliness at the expense of ensuring that safety standards are adequately followed.2 In Table 1.1, we can see an overview of the 5S System.

Table 1.1. Overview of the 5S System 5S system
seiri (sort) seiton (set in order) seiso (clean) seiketsu (systematize)

activity
Materials and parts used in the production process are sorted and the unused parts are stored at another place. parts chosen are put in order and organized; things are kept tidy and in a certain order. in this stage, all parts, as well as the workplace, are cleaned. all processes become regular activities at the workplace in order to guarantee consistency and reliability in quality and results. the first four ss become the new way of operating the production process. in the fifth stage, all processes developed in the first four stages are standardized and communicated to all employees in order to support kaizen goals.

shitsuke (standardize)

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total Quality Management, Japanese Style
Japanese consumers are obsessed with quality and do not accept any product defects. In the case of a product defect, the product will be returned, but the Japanese customer is lost forever. To avoid any problems with quality, decades ago, Japanese corporations started improving and refining their production management processes (see jidôka in chapter 3) and also implemented a number of instruments for controlling and sustaining quality at the highest level. Quality, however, plays an important role in all the other business processes as well. Here again, as with the kaizen approach, the quality idea is relevant at every level and stage. Total quality control is implemented in all phases of the manufacturing and work processes, and it is not simply result oriented. While working employees are constantly expected to check and improve the quality of work, mistakes must be reported or fixed as soon as they are found. Japanese firms apply a number of interesting tools to leverage their employees’ creativity and ideas and to make sure that their products and services are produced at the highest level. The most prominent tools are described in the following sections. Quality Circles The concept of quality circles is based on the idea that the interaction between different members of a group is more productive than several individual ideas. A Japanese quality circle is a small group, usually consisting of 8 to 10 people from the same work area, who are voluntarily involved in studying and solving product-quality problems. The problems they deal with are either problems that need improvement that the members find important or problems that the company assigns to them to solve. In her book The Accidental Office Lady, Laura Kriska describes her time as an American working for a well-known Japanese carmaker. At the time, women working in an office had to wear uniforms, while men did not. After complaining about this, Kriska was told to form a quality circle and present suggestions for improvement. A group formed and collected data on costs, motivation, and other factors, and after a few months, the results, which suggested that the uniform rule should

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be abandoned, were presented to the top management. The presentation was convincing, and the company changed its policy. This example shows that every area of the workplace is a target for possible improvements and that a group-oriented solution is preferred. When developing solutions within the quality circle, the well-being of all company members is of the highest importance and should be considered at all costs. Training plays an important role in quality circles. The circle leader is first trained by the senior management and then devotes a remarkable amount of time and energy to disseminating statistical knowledge and other related expertise to his or her subordinates (during the normal work time or in their spare time). The consequence is more worker participation and positive group dynamics, as every member is equipped with the relevant knowledge and skills and can freely communicate his or her ideas. Thus, the existence of quality circles significantly improves product quality as well as productivity. Also, however, individual suggestions must not be neglected. Suggestions given by circle members strongly stimulate innovation in Japanese firms, and members are encouraged to register patents in case the group discussion leads to inventions or new products. Genchi Genbutsu (Go and See) Genchi genbutsu, a Japanese term translated into English as “go and see for yourself,” has revolutionized Japanese firms and their business practices. This phrase enforces a simple but effective policy where employers immerse themselves in their company’s daily operations by experiencing a production site or business section for themselves. Genchi genbutsu is used to train young employees who are entering the company right after graduating from a university to let them experience the work and learn it from scratch. Many Japanese companies have a strong focus on stability and prefer their workforce to remain constant for many years, sometimes even a lifetime (see chapter 2). They usually take 1 or 2 years to train their employees and socialize them in the firm. In most cases, this happens also by genchi genbutsu. A new recruit entering a Japanese sales department will accompany a more experienced sales manager for up to 2 years before visiting a customer alone for the first time. This allows him to learn the business from a more experienced person; to become familiar

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with the customers, their likes, and their dislikes; and to become accustomed to the business. After being socialized in this manner, employees feel more relaxed doing their jobs and show greater motivation. Genchi genbutsu is also used in cooperation with job rotation, which is still very popular in the Japanese firm (see chapter 2). Many Japanese employees are moved to a new department every 2 to 3 years to ensure that they know all aspects of the business. In their new assignment, they learn each task by doing it from scratch. Japanese top managers who mostly “grew up” in only one firm have often worked in almost all parts of their company and really “know every corner of the firm.” This is one reason why Japanese firms feel uncomfortable hiring top managers from other firms or industries. The tacit and personal knowledge that can be acquired by genchi genbutsu is considered priceless and makes all employees experts in all aspects of their business over time. The hands-on approach of genchi genbutsu is also used to improve processes and solve problems. “Let us go back to the gemba, or the shop floor, and look for solutions there,” is a Japanese slogan when there is a problem that needs to be solved and the solution is not visible right away. Reflection Meetings Another tool for improving quality at a constant level is the reflection meeting, called hanseikai, which is held after projects, events, or any task that is performed by a group. A hanseikai is a very traditional way of reflecting on a project and implementing changes for future performance. In this meeting, the task is very carefully discussed by all team members, and possible improvements are developed during this discussion. A Japanese task is not finished until the hanseikai is over. A hanseikai usually consists of three components. In the first step, all team members analyze the task and compare the initial project plan to the actual performance. Following the first step, the performance of each team member is discussed, and they reflect on their own performance and make suggestions on how they could improve it next time. Finally, there is a feedback round in which the group discusses the particular aspects that could be improved and that need to be considered in future projects. Since a hanseikai can last a few hours, it is held right after the end of a task, when memory is still fresh and all members have ideas about how

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to improve the processes in the future. They recognize the company’s weaknesses, and they must be responsible for changing and fixing those weaknesses. A hanseikai is a management tool that is deeply embedded in Japanese culture.

Summary
• Kaizen is the most prominent Japanese management practice. It refers to continuous improvement and the idea that any managerial process can be perfected. Kaizen is not so much a detailed management practice but a philosophy that should be lived and implemented by every member of a Japanese firm, from the top management to the shop floor. The idea of kaizen does not include radical changes, such as job cuts, but mostly consists of small changes, often on a daily basis, and is based on constant communication with other group members. • The 5S system is system consisting of five concepts that begin with the letter “S” in Japanese: seiri (sort), seiton (set in order), seiso (clean), seiketsu (systematize), and shitsuke (standardize). The 5S system is an organizational system for production processes. • Quality circles are a means of quality management in the Japanese firm. They support employees in contributing their own ideas. • Genchi genbutsu refers to inspection at the level of the shop floor. In doing this, Japanese employees can find solutions for problems at the actual place where they occur. • After a project or an event, Japanese business people usually hold a reflection meeting called hanseikai. In a hanseikai, the performance is evaluated, and points of improvement are discussed.

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